House prices on an even keel

THE latest sign the property market is stabilising was delivered this week by estate agent Knight Frank, which revealed that prices in the prime central London market were unchanged in January on the previous month. It was the first time they had not fallen since last August.

The agent said the new year has brought a surge in buyer interest in the area - which includes Chelsea, Mayfair and Belgravia - after a lull in sales activity in the second half of 2004. Hopes that interest rates could start to fall in coming months may be behind the new-found optimism, it added.

Noel Flint, a partner at Knight Frank's Sloane Avenue office, said: 'January has seen a marked improvement in sales activity in prime London locations.

'The increase in demand has been successfully converted into sales. It is hoped that as more sales get reported, so more vendors will be encouraged to bring their property to the market.'

Estate agent Haart, which has about 100 branches in and around London, also painted a picture of a housing market that is levelling off. It said prices across the capital edged down by just 0.1% in January after falling by 1% in December and 2% in November.

Russell Jervis, managing director of Haart, predicted rising prices within months.

First-time buyers are continuing to trickle back to the market, their share of all purchases rising for the third month in a row to 21%, Jervis said.

'Many of our offices across London have witnessed an increase in activity,' he added. 'There have been more instructions and more enquiries compared with December, indicating that our customers have returned to the market after the usual Christmas break.'

Improved sentiment means sellers are under less pressure to reduce asking prices. When the housing boom hit the buffers last summer, sellers had to cut asking prices by about 6% to achieve a sale. Now they are offering discounts of 3% to 4%.

Today's reports chime with signs that, nationally, the housing market has started the year on a firmer footing. Lenders Halifax and Nationwide both reported rising prices in January, while latest official figures from the Bank of England show mortgage approvals increasing.

However, some experts believe this is a temporary pause before prices start falling again. Jonathan Loynes, an economist at Capital Economics, said: 'It is too early to conclude that any meaningful recovery is under way and we still expect house prices to fall by around 20% over the next two to three years.'